Why a strong US dollar might be detrimental to Bitcoin

Bitcoin advocate Joe Consorti has predicted a potential BTC value drop due to the US Dollar’s rising strength. In a post on X, Consorti explained that USD is at its strongest level in twenty-six months, which has historically been challenging for BTC.

He said :

“Incidentally, the last time USD had strengthened from this level on its way to the top, $BTC dropped 25% — $BTC has corrected 15% so far. Dollar strength may spill more $BTC blood before it gets better.”

His view is not surprising, given that many in the crypto community have also noted the rising strength of the USD with concern. The US Dollar Index (DXY), which tracks the value of the USD relative to a basket of other fiat currencies, including the Euros, Pounds Sterling, and Yen, has been increasing since Donald Trump was elected president, reaching a two-year high on Thursday.

With over 3% gains relative to other fiat currencies in the past three months, there are concerns that Bitcoin could suffer if the USD continues to strengthen. Historically, risk assets such as BTC and stocks perform poorly when the USD is strong.

Besides that, there are concerns that a stronger dollar will affect Bitcoin demand. Timothy Peterson noted that a stronger dollar makes Bitcoin more expensive for non-dollar investors since it is usually priced and traded in USD. Thus, it can make it less affordable and put downward pressure on the BTC price.

What’s driving DXY performance

Several factors have caused the DXY to increase, including Trump’s threat of imposing tariffs on trading partners, which could lead to market turbulence and attract demand for dollars. With the threat of tariffs from the incoming Trump administration, Euros and other currencies have been struggling against USD, causing the DXY index to increase.

Beyond that, the US economy has also performed better compared to its trading partners. It has achieved the much-desired soft landing, keeping inflation minimal and seeing sizable growth in gross domestic product (GDP). The country saw an unexpected eight-month low in weekly jobless claims this week, with around 9,000 declining to 211,000.

Nevertheless, not everyone is convinced that the DXY will continue increasing. Steno Research CEO Andreas Steno noted that the USD might have peaked against the Euro if the previous performance in 2016/17 is anything to go by. Thus, investors need to be cautious about their positions.

Bank of America believes USD is overvalued (Source: Barchart )

However, crypto analyst Benjamin Cowen believes DXY  still has more room to run. He predicted that DXY would reach a local top by 2025 Q1 and might stay at that level for a while.

Experts believe Bitcoin will thrive even with a strong USD

While the USD’s strengthening raises concerns, everyone agrees that a strengthened dollar will not affect BTC’s performance much. Bitcoin Writer Mitchell Askew believes that the USD’s strength is only in relation to other fiat currencies and not relative to commodities such as Bitcoin.

To buttress this point, financial analyst John Kicklighter user noted that US Crude performance.

He said:

“The US dollar is strong when compared to other major currencies, but not necessarily when leveled up to commodities. US crude has charged higher for a fourth consecutive session and cleared a zone that has played both support and resistance.”

Thus, Askew believes the same applies to BTC because the DXY has been rising since September but did not stop BTC from hitting its all-time high in December.

Onchain metrics also show that BTC is still in the middle of a bull run despite the almost 10% decline from its peak. CryptoQuant analyst Avocadoonchain observed that metrics such as Adjusted SOPR (Spent Output Profit Ratio), Miner Position Index (MPI), and Total network fees over 7-day SMA support this thesis.

They wrote:

“On-chain data suggests the bull market is still intact, and the current phase appears to be a cooling-off period rather than a cycle peak.”

However,  data also shows that Coinbase Premium has fallen to a 12-month low, which analysts believe signals US investors’ lack of institutional demand and cautious approach.

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